O'Reilly Automotive and Advance Auto are top defensive stock picks at BofA

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Bank of America upgrades O’Reilly Automotive (NASDAQ:ORLY) to a Buy rating from Neutral as it hunted for more defensive “staples-like” stocks within the consumer discretionary sector.

Analyst Elizabeth Suzuki and team think ORLY’s superior supply chain and inventory availability should enable it to continue to take share from both independent auto shops and national players. In addition, ORLY’s favorable fleet aging cycle is seen providing additional top-line growth.

“Partially mitigating the growth in the DIFM channel could be deceleration in the DIY channel, which may somewhat curb medium-term same-store sales growth vs. peers with more exposure to auto service.”

The firm also kept Advance Auto Parts (AAP) as it top overall pick in the auto retail sector. BofA estimates AAP’s EPS will grow at a CAGR of 11.4% from 2022 to 2024 to outpace peers.

BofA’s preference for exposure to professional auto services versus DIY auto parts retail extends to views on pure-play auto service companies Driven Brands (DRVN) and Mister Car Wash (MCW), both of which are kept rated at Buy. Auto service spending is noted to have a positive correlation with higher gas prices.

Read why Wells Fargo thinks consumer staples stock will outperform.